China’s debt has expanded dramatically over the past decade

China’s debt has boosted dramatically over the past decade. It is one of the biggest economic challenges confronting the ruling Chinese Communist Party. Remarkably, it turns 100 this week.

The second-largest economy identified the ballooning debt pile as a threat to economic stability. In recent years China tried to reduce the country’s reliance on debt for growth. However, that deleveraging effort came to a pause for much of last year due to the coronavirus pandemic.

As we know, the COVID-19 pandemic last year hit the whole world, and China was not an exception. The virus hit China’s economic growth and prompted authorities to make it easier for firms to get loans. As a result, China’s debt — measured against the size of its economy — rose to record levels last year.

Asian giant accumulated debt rapidly following the global financial crisis in 2007 and 2008. During the crisis authorities doled out a massive stimulus package largely funded through bank loans.

China’s debt levels stabilized for several years before accelerating again to hit a lifetime high of almost 290% of gross domestic product in the third quarter last year.

China’s outstanding total social financing surged 11% in May

In 2020, other major economies, including U.S., Japan, and those in Europe, similarly witnessed an uptick in debt-to-GDP ratios. It occurred as governments around the world boosted spending in order to help businesses and households cope with the pandemic.

Besides, the corporate sector in China accounted for a large proportion of total debt at over 160% GDP. However, as its economy is recovering, the country has renewed a multi-year effort to rein in debt in recent months.

Significantly, China’s outstanding total social financing increased 11% from a year ago at the end of May. Notably, it is a broad measure of credit and liquidity in the economy.

China now aims to become an advanced nation. President Xi Jinping announced in November that it’s possible to double the size of China’s economy and per capita income by 2035.